Preemptive Incentives and Liability Rules for Wildfire Risk Management

Abstract

Wildfires in the U.S. are growing in extent and severity, causing billions of dollars in damage each year. Wildfire policy has increased its focus on integrating fire suppression with risk mitigation through fuel reduction. In this context incentives to elicit management activities that mitigate fire risk are critical, because landowners may not carry out sufficient risk mitigation on their own. We examine the effectiveness and welfare implications of several incentive policies, including two novel approaches not studied in the context of wildfire management: liability rules and voluntary agreements. Our analysis uses a threshold model of public good provision, which allows for each landowner's mitigation choices to depend on the total amount of mitigation in the landscape. Our results suggest that the risk mitigation threshold is critical in determining the effectiveness and welfare effects of different incentive programs. When the threshold is high, only voluntary agreements and cost sharing can increase mitigation effort and welfare. Negligence standards can also be effective and welfare enhancing but only when the mitigation threshold is sufficiently low.